Austria should stand by Hypo creditors: Nowotny

VIENNA (Reuters) - Austria should not demand creditors of
struggling state bank Hypo Alpe Adria take a "haircut" on the
debt, central bank head Ewald Nowotny said, contradicting the
country's finance minister.

Nowotny, who was on Friday put in charge of a task force set up
to advise the government on how to wind down Hypo after its
previous chief quit, said Austria's reputation was at stake if it
did not stand by its obligations.

"I believe our model of how a state should behave should be, if
you like, more like Germany, should be more like Holland, and not
so much Greece or Cyprus," Nowotny told Austria's ORF radio in an
interview broadcast on Saturday.

Finance Minister Michael Spindelegger had on Friday questioned
whether investors who snapped up discounted Hypo debt "to try to
make a quick buck" were worthy of protection.

Nowotny said: "When one has reached this decision in principle
that a state honors its obligations, then one must recognize that
this means also making payments to creditors that one personally
does not agree with."

The resignation of Klaus Liebscher on Friday as head of both the
Hypo task force and the bank's supervisory board piled more
uncertainty on how Austria would deal with the problem of how to
wind down Hypo, which it nationalized in 2009.

Nowotny said a state-owned "bad bank" was his preferred solution
and one that should be put into practice as quickly as possible,
but Spindelegger had said he had no favored option and again
refused rule to out allowing an insolvency.

The split has highlighted market worries posed by Hypo, which
Austria had to take over after a period of breakneck expansion in
the Balkans pushed the bank to the brink of bankruptcy and
threatened financial stability in the region.

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The expansion was fueled by guarantees from Hypo's home province
of Carinthia, of which 12.5 billion euros ($17.2 billion) remain,
posing the danger that the province would be bankrupted if Hypo
were allowed to become insolvent.

Ratings agency Fitch maintained its top rating and stable outlook
for Austria on Friday but said Vienna's failure to lay out a
clear strategy for Hypo raised "concerns about policy coherence
and credibility in the near term".

Nowotny said he estimated the winding-down of Hypo would cost
Austria around 4 billion euros on top of 4.8 billion it has
already provided in aid and guarantees.

And he said it would be a "sensible arrangement" if Austria's
other provinces, which are nervously eyeing Carinthia's position,
would contribute to the federal government some 250 million euros
they collect in bank taxes.

Nowotny denied that he personally, or the central bank, which was
responsible for overseeing Hypo, were to blame for what he called
the "real catastrophe" of the current situation, and reiterated
that he believed the auditors had failed.

"I believe the main problem was simply that many of the balance
sheets weren't right and the valuations weren't right," he said.
"That is a process where the central role lies with the
auditors."

Deloitte , Hypo's former auditors, had rejected the accusation in
an email to Reuters saying: "Deloitte is surprised by the
statement of Governor Nowotny. We are convinced that we have
performed the audit of Hypo Group state of the art and therefore
we completely reject these allegations."

($1 = 0.7275 euros)

(Additional reporting by Michael Shields; Editing by David
Holmes)

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